Forbes Magazine is estimating that $30 trillion in assets moves from the current to younger, more sustainably oriented investors, incentivizing companies to implement more comprehensive “ESG” reporting measures. ESG stands for Environmental, Social and Corporate Governance reporting and has become a key element in annual reports of companies listed at major stock exchanges, as London, Singapore, NY and other stock exchanges introduce specific ESG reporting guidelines. McKinsey estimates that ESG-sensitive investments already accounted for $22.9tn, or 26 percent, of professionally managed assets in Asia, Australia, New Zealand, Canada, Europe and the US at the end of 2016 (up from 21.5 percent in 2012).
Investors’ motifs to look for and use these indicators aren’t completely altruistic. In fact, there is an increasing evidence base that suggests that the long-term performance of companies may best be predicted using ESG metrics. Seeing them as an indicator of a company’s overall sustainability, it links corporate policies on key themes (from animal testing to human rights) to the financial viability and sustainability. As an example, it can cover a company’s stance towards and adherence to global standards such as the Global Compact or the Universal Declaration of Human Rights. It even makes key corporate decisions more transparent and can then translate this valuable information for stock traders. Unilever for example recently announced that its goal on sustainable palm oil has been reached three years ahead of the original schedule (according to its ESG reporting) – giving it a stock market push.
Practically, ESG reporting can be very complex and it is worth checking out a few example of both ESG reports and ESG reporting frameworks.
Look at the case of German insurance giant Allianz and some of the points they specifically include in their 54 page framework:
Allianz ESG Guideline on Agriculture
Allianz ESG Guideline on Animal Welfare
Allianz ESG Guideline on Betting and Gambling
Allianz ESG Guideline on Clinical Trials
.Allianz ESG Guideline on Animal Testing
Allianz ESG Guideline on Defense
Allianz ESG Guideline on Human Rights
Allianz ESG Guideline on Hydro-Electric Power (HEP)
Allianz ESG Guideline on Infrastructure
Allianz ESG Guideline on Mining
Allianz ESG Guideline on Nuclear Energy
Allianz ESG Guideline on Oil and Gas
Allianz ESG Guideline on transactions related to the Sex Industry
Unilever’s Knorr brand publishes snapshots of its ESG performance on specific issues, such as the sustainable cultivation of herbs.
Last but not least it is worth checking out some actual ESG reporting as part of the annual financial reporting. Here, Unilever again is considered a leader in the field with very advanced messaging and reporting. It is absolutely worth checking Unilever’s 2017 report for how well ESG is integrated into its annual report.
Fantastic read! I particularly enjoyed looking into the Unilever report. The real world example of ESG policy at work is an effective way to demonstrate its purpose. I have also been digging into how ESG is becoming an integral part of asset management. Through that process, I have spoken to ESG experts from UNPRI and other international pioneers. Would you be interested in taking a look at the content I have generated from that research? It complements the work that you have done here with ESG Reporting – How Companies React to More Conscious Investors.
Hi Emerson, great to hear from you. I’ve sent you an email. Looking forward to reading your research. Cheers!